Income and wealth inequality with progressive income taxation in an integrated Walrasian-general equilibrium and neoclassical growth theory

Abstract

This study develops a dynamic economic growth model of public goods in a dynamic general equilibrium theory for an open economy with heterogeneous households and progressive income taxation. The tax income is spent on supplying public goods. The economic system consists of one production sector and one public sector. The public sector is financially supported solely by the tax income. The model describes dynamic interactions between economic growth, wealth accumulation, progressive income taxation, and public services in an internationally open environment. The model is developed for any number of types of households. We simulate the model to demonstrate the existence of equilibrium and motion of the dynamic system. We also examine the effects of changes in different parameters on the motion of the economic system.